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process costing
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ProcessCosting
myaccountingteacher.com
Job-Order Costing
Step 1. Identify a specific product or project
Step 2. Specifically trace the costs of direct materials and direct labor to the product or project.
Step 3. Allocate an appropriate amount of overhead costs to the product or project.
myaccountingteacher.com
One Mahogany Table
Job Cost Sheet
myaccountingteacher.com
Job-Order CostingWhen the Units Are
Identical?
What about a production facility in which is made• Identical automobiles?• Identical refrigerators?• Identical batches of paint?• Identical batches of soft drinks?
In these cases, the focus is on two things• Total manufacturing cost during a period• Total units produced during the period
myaccountingteacher.com
Process Costing
Cost per (identical) Unit
Total Manufacturing Cost for the period
-----------------------------------------------Equivalent Units of Production for the period
myaccountingteacher.com
Process Costing
Summary
• All units produced are identical.• Costs are accumulated by work
location or by process.• Costs are averaged over the
identical units produced.
myaccountingteacher.com
Steps in
Process Costing
Step 1. Determine “work done” (equivalent units).Step 2. Determine production costs; compute the
costs per unit.Step 3. Compute the total cost associated with the
units completed and transferred out (cost of goods manufactured).
Step 4. Compute the total cost of the units remaining (ending work-in-process inventory).
Step 5. Prepare the production cost report.
myaccountingteacher.com
Equivalent Units
• You have three research papers due (each of equal length and difficulty).• As of this morning, you had made the following progress:• Paper 1 – 40% complete• Paper 2 – 25% complete• Paper 3 – not yet started
• As of the end of the day today, you had made the following progress:• Paper 1 – 100% complete• Paper 2 – 75% complete• Paper 3 – 20% complete
How much work did you get done today?myaccountingteacher.c
om
Equivalent Units
How much work did you get done today?
CompletedBeginning End Today
Paper 1 40% 100% 0.60Paper 2 25% 75% 0.50Paper 3 0% 20% 0.20
Equivalent “papers” completed today 1.30
myaccountingteacher.com
Allied Cement Company
Flow of Products and Coststhrough Process Centers
myaccountingteacher.com
Allied Cement Company
Equivalent Units
Beginning EndDirect Materials 4,000 pounds 100% done 2,000 pounds 100% done
Conversion Costs 4,000 pounds 20% done 2,000 pounds 60% done
Units STARTED AND COMPLETED 44,000 pounds 44,000 pounds
Assume FIFO cost flow (first in, first out):Complete beginning inventory before starting on any other units.
Conversion Costs = Direct Labor + Manufacturing OverheadThe costs to convert the direct materials into finished goods
myaccountingteacher.com
Allied Cement Company
Equivalent Units
myaccountingteacher.com
Allied Cement Company
Production Costs
myaccountingteacher.com
Allied Cement Company
Costs Transferred Out
myaccountingteacher.com
Allied Cement CompanyEnding Work-in-Process Inventory
myaccountingteacher.com
Allied Cement CompanyProduction Cost Report (Costs “In”)
myaccountingteacher.com
Allied Cement CompanyProduction Cost Report (Costs
“Out”)
myaccountingteacher.com
Steps in
Process Costing
Step 1. Determine “work done” (equivalent units).Step 2. Determine production costs; compute the
costs per unit.Step 3. Compute the total cost associated with the
units completed and transferred out (cost of goods manufactured).
Step 4. Compute the total cost of the units remaining (ending work-in-process inventory).
Step 5. Prepare the production cost report.
myaccountingteacher.com
Yosef CompanyAnother Process Costing Example
myaccountingteacher.com
Yosef CompanyAnother Process Costing Example
myaccountingteacher.com
Yosef CompanyAnother Process Costing Example
myaccountingteacher.com
Yosef CompanyAnother Process Costing Example
myaccountingteacher.com
From Homework (Problem 73)Another Process Costing Example
myaccountingteacher.com
From Homework (Problem 73)Another Process Costing Example
myaccountingteacher.com
From Homework (Problem 73)Another Process Costing Example
myaccountingteacher.com
From Homework (Problem 73)Another Process Costing Example
myaccountingteacher.com